The Ringtone Money Grab

We've written about the complex, yet incredibly important, world of music publishing and licensing (see:  Bigger than Grokster?, The Complexities of Music and Music Publishers Leave Dark Age).  Shockingly, despite our efforts, the impact of Section 115 of the U.S. Copyright Code has yet to be referenced on The OC or even debated on Meet the Press. 

This doesn't mean that there isn't furious and even interesting battles happening behind the scenes with the labels, publishers, performance rights organizations and the music distribution intermediaries.  Naturally, this action is being driven by serious interest in making as much money as possible in new, opening digital markets. The current (and seminal) gold rush is the $4 billion dollar-plus ringtone market.

American Lawyer currently has an excellent article on why (free registration required).  An excerpt:

There¹s nothing the press likes more than a good feud, but this one has been largely ignored, perhaps because few in the industry or among its observers can agree on what a ringtone is. A derivative of original published music? A fragment of a digitally downloaded song file? A cell phone user¹s fashion statement-thus a public performance for which fees have to be collected on behalf of performers and publishers?

The answers to these questions have big implications for the wireless and music industries. If ringtones are mechanical reproductions of recorded music in the usual sense (like compact discs or digital music files), any licensee who sells a ringtone has only to notify Harry Fox of a sale and pay a 8.5 cents-per-ringtone-sold compulsory fee. If, on the other hand, ringtones are reproductions that make a significant change in a song¹s composition or consumer use, Harry Fox and its music publishing clientele can refuse to license copyrighted work for ringtone use. And they can charge much more than 8.5 cents per unit sold for the right to do so.

The piece concludes:

Les Watkins, vice president of business affairs and business development at Music Reports, Inc., which provides copyright research for broadcasters, download services, and other media that license musical works, estimates that the music business has lost billions of dollars because of operational and legal turmoil. An industry that¹s seeking to adapt to new times needs to coordinate, promote new intellectual property laws, and dance to a different beat.

Otherwise, Watkins says, ³the business will go away."